You are on page 1of 13

Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 1 of 13

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF NEW YORK

DARREN SHULMAN, Individually and on Case No. 17-CV-3282


Behalf of All Others Similarly Situated,

Plaintiff, CLASS ACTION

v.
JURY TRIAL DEMANDED
ALLIANCE MMA, INC., PAUL K.
DANNER, III, and JOHN PRICE,
Defendants.

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

This action is brought against Defendants Alliance MMA, Inc. (Alliance MMA or the

Company), Paul K. Danner, III, and John Price (collectively, the Defendants). Plaintiff

Darren Shulman (Plaintiff), individually and on behalf of all other persons similarly situated, by

his undersigned attorneys, for his complaint against Defendants, alleges the following based upon

personal knowledge as to himself and his own acts, and information and belief as to all other

matters, based upon, inter alia, the the investigation of counsel, which included a review of United

States Securities and Exchange Commission (SEC) filings by Alliance MMA, as well as

regulatory filings and reports, securities analyst reports and advisories by the Company, press

releases and other public statements issued by the Company, and media reports about the

Company. Plaintiff believes that additional evidentiary support will exist for the allegations set

forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all persons

and entities other than Defendants who purchased or otherwise acquired the publicly traded
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 2 of 13

securities of Alliance pursuant and/or traceable to the Companys initial public offering on or about

October 6, 2016 (the IPO), seeking to recover compensable damages caused by Defendants

violations of the federal securities laws.

2. This action is brought on behalf of the Class for violations of Sections 11 and 15 of

the Securities Act of 1933 (the Securities Act), 15 U.S.C. 77k and 77o.

3. Pursuant to the Securities Act, Defendants are strictly liable for material

misstatements in the Offering Materials issued in connection with the IPO. The Securities Act

claims specifically exclude any allegations of fraud, knowledge, recklessness or scienter, do not

sound in fraud and based solely on strict liability and negligence.

JURISDICTION AND VENUE

4. The federal law claims asserted herein arise under 11 and 15 of the Securities

Act, 5 U.S.C. 77k and 77o.

5. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.

1331 and 22 of the Securities Act, 15 U.S.C. 77v. In connection with the acts, conduct and

other wrongs alleged herein, Defendants, directly or indirectly, used the means and

instrumentalities of interstate commerce, including the U.S. mails, interstate telephone

communications, and the facilities of the NASDAQ (a national securities exchange located in this

District).

6. Venue is proper in this Court pursuant to 28 U.S.C. 1391(b) and 22 of the

Securities Act because the Companys headquarters are located in this District

PARTIES

7. Plaintiff purchased Alliance MMA securities as set forth herein and in his

certification filed herewith.

2
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 3 of 13

8. Alliance MMA is a Delaware corporation with its principal executive offices

located at 590 Madison Avenue, 21st Floor, New York, New York 10022. Alliance MMAs

common stock trades on the NASDAQ under the ticker symbol AMMA.

9. Defendant Paul K. Danner, III (Danner) has been the Companys Chief Executive

Officer (CEO) since May 1, 2016.

10. Defendant John Price (Price) has been the Companys Chief Financial Officer

(CFO) since August 3, 2016.

11. Defendants in Paragraphs 9-10 are collectively referred to herein as the Individual

Defendants.

12. Each of the Individual Defendants:

a) directly participated in the management of the Company;

b) was directly involved in the day-to-day operations of the Company at the

highest levels;

c) was directly or indirectly involved in drafting, producing, reviewing and/or

disseminating the false and misleading statements and information alleged

herein;

d) was directly or indirectly involved in the oversight or implementation of

the Companys internal controls;

e) was aware of or deliberately recklessly disregarded the fact that the false

and misleading statements were being issued concerning the Company;

and/or

f) approved or ratified these statements in violation of the federal securities

laws.

3
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 4 of 13

13. Alliance is liable for the acts of the Individual Defendants and its employees under

the doctrine of respondeat superior and common law principles of agency because all of the

wrongful acts complained of herein were carried out within the scope of their employment.

14. Alliance MMAs Registration Statement, including the documents it incorporated

by reference, contained materially untrue and misleading statements and/or omissions. Defendants

negligently allowed the Prospectus to contain materially untrue and misleading statements and/or

omissions to the extent that they knew or should have known that the Prospectus was materially

misleading, but failed to act in a reasonable manner to prevent the Prospectus from containing

materially misleading statements and/or preventing the materially misleading Prospectus from

being disseminated. These claims, brought under Sections 11 and 15 of the Securities Act, 15

U.S.C. 77k and 77o, are based solely on claims of strict liability and/or the absence of any

affirmative defense based on the reasonableness of the pertinent Defendants investigation into the

true facts. These claims are not based on any allegation of fraud, intentional wrongdoing, or severe

recklessness.

SUBSTANTIVE ALLEGATIONS

I. Company Background

15. Alliance MMA was formed on February 12, 2015 to acquire companies in the

mixed martial arts (MMA) industry. The Company aims to create a highly organized feeder

organization to the sports highest level of professional competition including The Ultimate

Fighting Championship (UFC), Bellator MMA, World Series of Fighting and other prestigious

MMA promotions worldwide.

16. On August 16, 2016, the Company filed a registration statement on Form S-1 with

the SEC. The registration statement was subsequently amended, with the final amended

4
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 5 of 13

registration statement on Form S-1/A filed on August 30, 2016 (collectively, the Registration

Statement). The Registration Statement was declared effected by the SEC on September 2, 2016.

17. On September 30, 2016, the Alliance MMA acquired the assets and assumed

certain liabilities of six companies. Additionally, the Company acquired a seventh company. The

seven companies consisted of five regional MMA promotion companies, a live MMA video

promotion and content distribution company, and an electronic ticketing platform serving MMA

and other combat sports events.

18. On or about October 6, 2016, the Company completed its IPO that consisted of a

public sale of a 2,222,308 shares of the Companys common stock at $4.50 per share.

II. Material Misstatements and Omissions during the Class Period

19. The Registration Statement, signed by Defendants Danner and Price, provided the

Companys financial statements for the three and six months ended June 30, 2016, including the

following statements of operations

5
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 6 of 13

20. The Registration Statement further provided the Companys financial statements

for the six months ended June 30, 2016, including the following balance sheet:

21. The Registration Statement also provided the Companys financial statements for

the six months ended June 30, 2016, including the following statement of operations:

22. The Registration Statement provided the Companys financial statements for the

six months ended June 30, 2016, including the following statements of cash flow:

6
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 7 of 13

23. The statements in paragraphs 19-22 above were materially false and/or misleading

because they misrepresented and failed to disclose the following adverse facts pertaining to the

Companys business, operations and prospects, which were known to Defendants or recklessly

disregarded by them. Specifically, Defendants made false and/or misleading statements and/or

failed to disclose that: (1) the condensed consolidated financial statements for the three months

ended June 30, 2016 could not be relied upon because of an error in recognizing as compensation

transfers of common stock by an affiliate of the Company to individuals who were at the time of

transfer, or subsequently became, officers, directors or consultants of the Company; (2) the

condensed consolidated financial statements for the six months ended June 30, 2016 could not be

relied upon because of an error in recognizing as compensation transfers of common stock by an

7
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 8 of 13

affiliate of the Company to individuals who were at the time of transfer, or subsequently became,

officers, directors or consultants of the Company; and (3) as a result, Defendants statements

Companys growth in media placement revenues would not occur in the fourth fiscal quarter 2016;

(iv) as a result of the foregoing, the Companys statements, as well as Defendants statements

about the Companys business, operations, and prospects, were false and misleading and/or lacked

a reasonable basis at all relevant times.

III. The Truth Emerges


24. After the marked closed on April 12, 2017, Alliance MMA filed a Form 8-K filed

with the SEC announcing the Companys financials for the nine months ended September 30, 2016

included in the Companys Form 10-Q for the quarter ended September 30, 2016 and for the three

and six months ended June 30, 2016 should no longer be relied upon (April 12, 2017 Form 8-

K). The April 12, 2017 Form 8-K stated:

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a


Related Audit Report or Completed Interim Review.

On April 7, 2017, the Board of Directors of Alliance MMA, Inc. (the Company)
concluded that the condensed consolidated financial statements for the nine months
ended September 30, 2016 included in the Companys Form 10-Q for the quarter
ended September 30, 2016 and for the three and six months ended June 30, 2016
should no longer be relied upon because of an error in recognizing as compensation
transfers of common stock by an affiliate of the Company to individuals who were
at the time of transfer, or subsequently became, officers, directors or consultants of
the Company. The Company plans to include in its annual report on Form 10-K for
the year ended December 31, 2016 revised financial information for the nine
months ended September 30, 2016 and for the three and six months ended June 30,
2016. The Companys chief financial officer has discussed the determination to
restate these financial statements with its independent accounting firm.
25. On Shares of Alliance have plummeted since the IPO and currently trade around

$1.45 per shareless than 66% of its IPO price.

26. 29. As a result of Defendants wrongful acts and omissions, and the precipitous

decline in the market value of the Companys securities, Plaintiff and other Class members have

suffered significant losses and damages.

8
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 9 of 13

CLASS ACTION ALLEGATIONS

27. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of all persons who purchased or otherwise acquired the Companys

common stock pursuant or traceable to the Registration Statement issued in connection with the

IPO (the Class). Excluded from the Class are Defendants and their families, the officers and

directors of the Company, at all relevant times, members of their immediate families and their

legal representatives, heirs, successors, or assigns, and any entity in which Defendants have or had

a controlling interest.

28. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Alliance MMA common stock was actively traded on

the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds

or thousands of members in the proposed Class. Record owners and other members of the Class

may be identified from records maintained by Alliance MMA or its transfer agent and may be

notified of the pendency of this action by mail, using the form of notice similar to that customarily

used in securities class actions. Upon information and belief, these shares are held by hundreds if

not thousands of individuals located geographically throughout the country and possibly the world.

Joinder would be highly impracticable.

29. Plaintiffs claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by the defendants respective wrongful conduct in

violation of the federal laws complained of herein.

9
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 10 of 13

30. Plaintiff has and will continue to fairly and adequately protect the interests of the

members of the Class and have retained counsel competent and experienced in class and securities

litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class.

31. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members, including:

(a) whether the Securities Act was violated by Defendants;

(b) Whether the Registration Statement contained false and misleading

statements of material fact and omitted material information required to be

stated therein;

(c) To what extent the members of the Class have sustained damages and the

proper measure of damages.

32. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden

of individual litigation make it impossible for members of the Class to individually redress the

wrongs done to them. There will be no difficulty in the management of this action as a class action.

CLAIMS FOR RELIEF

COUNT I
For Violation of Section 11 of the Securities Act
(Against All Defendants)

33. Plaintiff incorporates by reference each and every preceding paragraph as though

fully set forth herein.

34. This Count is asserted by Plaintiff on behalf of themselves and the Class against all

the Defendants and is based upon Section 11 of the Securities Act, 15 U.S.C. 77k.
10
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 11 of 13

35. The Registration Statement was inaccurate and misleading, contained untrue

statements of material facts, omitted to state other facts necessary to make the statements made

not misleading, and omitted to state material facts required to be stated therein.

36. None of the defendants named herein made a reasonable investigation or possessed

reasonable grounds for the belief that the statements contained in the Registration Statement were

true and without omission of any material facts and were not misleading.

37. By reason of the conduct herein alleged, each defendant violated 11 of the

Securities Act.

38. Plaintiff acquired the Companys stock pursuant and/or traceable to the IPO.

39. Plaintiff and the Class have sustained damages. The value of the Companys

common stock has declined substantially subsequent to and due to defendants violations.

40. At the time of their purchases of the Companys common stock, plaintiff and other

members of the Class were without knowledge of the facts concerning the wrongful conduct

alleged herein and could not have reasonably discovered those facts prior to the disclosures herein.

Less than one year has elapsed from the time that plaintiff discovered or reasonably could have

discovered the fact upon which this Complaint is based to the time that plaintiff commenced this

action. Less than three years has elapsed between the time that the securities upon which this Count

is brought were offered to the public and the time plaintiff commenced this action.

41. By reason of the foregoing, Plaintiff and the other members of the Class are entitled

to damages as measured by the provisions of Section 11(e), 15 U.S.C. 77K(e), from the Defendants

and each of them, jointly and severally.

11
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 12 of 13

COUNT II
For Violation of Section 15 of the Securities Act
(Against the Individual Defendants)

42. Plaintiff incorporates by reference and realleges each and every allegation above as

though fully set forth herein.

43. This Count is brought pursuant to 15 of the Securities Act against the Individual

Defendants.

44. The Individual Defendants each were control persons of the Company by virtue of

their positions as directors and/or senior officers of the Company.

45. The Individual Defendants were each culpable participants in the violation of 11

of the Securities Act, alleged in Count I above, based on their having signed or authorized the

signing of the Registration Statement and having otherwise participated in the process that allowed

the IPO to be successfully completed.

46. None of the Individual Defendants made reasonable investigation or possessed

reasonable grounds for the belief that the statements contained in the Prospectus and Registration

Statement were accurate complete in all material respects. Had they exercised reasonable care,

they could have known of the material misstatements and omissions alleged herein.

47. This claim was brought within one year after the discovery of the untrue statements

and omissions in the Prospectus and Registration Statement and within three years after the

Companys securities were sold to the Class in connection with the IPO. It is therefore timely.

48. By reason of the above conduct, for which the Companys is primarily liable, as set

forth above, the Individual Defendants are jointly and severally liable with and to the same extent

as the Companys pursuant to Section 15 of the Securities Action, 15 U.S.C. 77o.

12
Case 1:17-cv-03282-RJS Document 1 Filed 05/03/17 Page 13 of 13

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment as follows:

(A) Declaring this action to be a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure and certifying Plaintiff as a representative of the Class and her counsel as Class

counsel;

(B) Awarding damages in favor of plaintiff and the Class against all defendants,

jointly and severally, in an amount to be proven at trial, including interest thereon;

(C) Awarding Plaintiff and the Class their reasonable costs and expenses

incurred in this action, including and attorneys fees;

(D) Awarding rescission or a rescissory measure of damages; and

(E) Awarding such equitable/injunctive or other relief as the Court may deem

just and proper.

JURY DEMAND

Plaintiff demands a trial by jury.

Dated: May 3, 2017 LEVI & KORSINSKY LLP

Nicholas I. Porritt
Adam M. Apton
30 Broad Street
24th Floor
New York, New York 10004
Tel.: (212) 363-7500
Fax: (212) 363-7171
Email: nporritt@zlk.com
Email: aapton@zlk.com

Counsel for Plaintiff

13